1. Calculate the present worth of the series of 10 annual cash flows with the fi

ID: 2507484 • Letter: 1

Question

1. Calculate the present worth of the series of 10 annual cash flows with the first cash flow equal to $15,000 at the end of year one and each successive cash flow increasing by $1,200. The interest rate is 12%. Give your answer to the nearest dollar. No $

2. An investor is considering buying some land for $100K and building an office building on it. Three different proposals are being considered.

Using the incremental B/C ratio analysis, which of the following is true for the following numbers?

2 Stories 5 Stories 10 Stories

Building cost 400K 800K 2,100K

Resale of land, bldg. 200K 300K 400K.

In 20 years

Annual rental (profit) 70K 105K 256K

2>5>10

2>10>5

10>5>2

10>2>5

3. Three alternatives for a project are listed below. All the alternatives have no salvage value. If the Marr is 12%, using the payback period of years to two decimal places, what is the value of the smallest payback period?

A B C

first cost $50 $150 $110

annual benefit $28.8 $39.6 $39.6

useful life in years two six four

computed ROR 10% 15% 16.4%

4. If the Marr is 12%, computer the value of X (to the nearest cent) that makes these two alternatives equally desirable.

A B

first cost $150 $x

annual cost $40 $65

salvage value $100 $200

useful life in years six six

Explanation / Answer

Year

Amount

PV Factor @ 12%

P.V. of Amount

15000

0.8929

$13,392.86

16200

0.7972

$12,914.54

17400

0.7118

$12,384.98

18600

0.6355

$11,820.64

19800

0.5674

$11,235.05

21000

0.5066

$10,639.25

22200

0.4523

$10,042.15

23400

0.4039

$9,450.87

24600

0.3606

$8,871.01

25800

0.3220

$8,306.91

PRESENT WORTH

$109,058.25

2
Assuming MARR = 12%
Present Value of Costs:
2 storey = $400,000
5 storey = $800,000
10 storey = $2,100,000

Present Value of Benefits
2 storey = 70,000*PVA(12%,20) + 200,000*PV(12%,20) = $543,563
5 storey = 105,000*PVA(12%,20) + 300,000*PV(12%,20) = $815,345
10 storey = 256,000*PVA(12%,20) + 400,000*PV(12%,20) = $1,953,531

Incremental Benefit-Cost Ratio = (P.V. of benefits on new plan